Year: 2015

Footballers hauling dustbins… Now there’s an Idea!

Footballers hauling dustbins… Now there’s an Idea!

My eye was recently caught by an interview given by David Palmer-Jones, chief executive of Suez UK, to Andrew Cave of The Sunday Telegraph in which he fondly remembers some of the Grimsby Town FC squad emptying old-fashioned metal dustbins in order to get themselves fit and earn some extra cash during the 1970’s. How times have changed and not just in relation to professional footballers’ remuneration!

It seems that the French are now big on waste, especially in this country. Two of the biggest waste groups operating in the UK are French-owned, Veolia and Suez UK which is part of the water & recycling group, Suez Environment. The latter handles 9.7m tonnes of waste a year from which it extracts 6.1m tonnes of materials and generates 930k megawatt hours of electricity.

According to Mr Palmer-Jones, this sea change in the way waste management firms look at waste (i.e. rubbish) occurred in 2008 when the government at the time introduced an escalator system for the landfill tax. This levy has risen from £8 per tonne then to the current rate of £82.60 with the result that firms which had formerly enjoyed a steady stream of income from a high margin business (operating landfill sites) began to invest heavily in the infrastructure of recycling.

This must be one of the rare cases where government intervention in a marketplace has produced a beneficial and immediate change. Of course, the higher cost of landfill due to taxes has undoubtedly resulted in increased costs to councils and companies but it has also forced a change in practice and attitudes for a whole industry which has been wholly beneficial for the environment.

Britain still sends 45% of its waste (17m tonnes) to landfill each year. Back in 2008 before the escalator was introduced, Suez had thirty sites which produced 80% of its profits. Now it has twenty and plans to close all but three or four. By contrast, it now runs 33 materials recycling plants, 102 household “dumps,” 57 transfer stations and five refuse-derived fuel factories amongst other facilities.

Encouraged by the above, I then checked the latest online edition of Waste Management World (www.waste-management-world.com), the official magazine of international solid waste management only to discover that the front page was full of inspiring initiatives. At one end of the scale is a new $500m scheme to cut greenhouse gas emissions by better waste management in Germany, Norway, Sweden & Switzerland.

At the other, there are prisoners recycling worn Ocado uniforms into aprons in HMP Northumberland to drones which monitor methane emissions from UK landfill sites to an Israeli start-up which manufactures domestic biogas kits for cooking. It hit its crowd funding target of $100k in 24 hours!

In my last blog, I looked at the problem of waste from the top down and concluded that among the most exciting developments were self-selecting networks of individuals and organizations coming up with solutions of their own accord. But the change of policy by Suez UK (and, I imagine, some of its competitors) following the introduction of escalating levies on landfill sites has gone some way to changing my mind about the effectiveness of state bureaucracies in bringing about meaningful change.


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A Sparkling Occasion

A Sparkling Occasion

Last Thursday saw the third hosting of the Turquoise wine tasting challenge, which afforded us the opportunity to say thank you to the people we have worked with during the course of the past 12 months: clients, investee companies, co-advisers and other partners. The event saw 11 teams competing to demonstrate their knowledge of fine wines, failing which their ability to cheat and, lastly, their competence at randomly selecting answers from a multiple choice questionnaire. Despite the availability of the latter, several teams failed to achieve even a 1-in-4 success rate!

This year the aperitif was Nyetimber (www.Nyetimber.com), recently judged to be superior to many leading French champagne brands in an expert blind tasting. For those who have not had the opportunity to try this English sparkling wine, I highly recommend it and I was far from alone in my enthusiasm. In fact, as we learned from one of the questions in the main tasting challenge, England produced 6.3 million bottles of wine in 2014 so there are clearly lots of people out there who have acquired a taste for these relatively new ‘Old World’ vintages.

The main tasting comprised two white, two red and two sparkling wines. For some participants, simply working out which wines fell into each category seems to have presented considerable difficulties. Then there were the trick questions. Having persuaded themselves that one of the reds was from Chateau Musar in Lebanon’s Bekka Valley, one team unwisely selected ‘Kofta’ as the grape variety… Others were caught out by more sophisticated traps such as being offered Sancerre as a grape option rather than a region.

In reality, very few of us had any real insight into the correct answers. For example, have you heard of the Airen grape? Apparently it was the most-planted variety in the world until recently being overtaken by Cabernet Sauvignon. Likewise, do you know that the longest recorded flight of a champagne cork from a bottle was 178 feet (over 50 metres)?!

At the end, it came down to a three-way tiebreaker. The question: what was the price achieved at auction for a single double-magnum of Napa Valley’s Screaming Eagle from each of 10 consecutive years (equal to 40 standard bottles) ? Answer: something like $600K. At the death, class prevailed and my team took home the prize: a magnum of Cremant de Bourgogne for each of us. Santé!


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Doing the Honourable Thing

Doing the Honourable Thing

Last week we were treated to a scoop from The Ecologist (no, not the Economist) which revealed a leaked letter from Amber Rudd, Secretary of State for Energy & Climate Change, to her Cabinet colleagues. This missive admitted that, contrary to the strong impression Ms Rudd had given to Parliament, the UK is not on track to meet its (legally binding) 2020 renewable energy targets. However, the fine detail behind the controversy seems to have been Ms Rudd highlighting that renewable heat generation and renewable transport fuels have failed to match the progress made in renewable electricity generation, thereby risking a failure to meet the overall energy commitment.

What would failure mean?
We could take the view that countries sign up to all sorts of international commitments and then fail to honour them completely (or, in some cases, at all). In the context of climate change, the US signed the Kyoto Protocol, then failed to ratify or implement it. Canada signed up to Kyoto, at least made some weak efforts to implement it and only then abandoned the effort several years later. The European Union (as a whole), on the other hand, has a pretty decent track record of honouring its main Kyoto commitments, even if some of the associated initiatives (like the Emissions Trading Scheme) have failed.

Critics argue that the UK is responsible for a very small proportion of global GHG emissions and, therefore, what we do or don’t do on renewable energy is insignificant compared to the US, China, India and others. Others say that we must lead by example given that we were a leading proponent of global industrialisation (which largely caused the problem in the first place) and remain an influential player in international affairs.

The UK, as a leading member of the European Union, signed up to a commitment to generate 20% of its energy from renewables by 2020. Since then, successive governments have broadly adhered to that commitment though putting in place the regulatory framework and financial incentives to stimulate investment in the required infrastructure. We are now in the final straight and achieving the goal is within reach. Notwithstanding that the financial situation is tighter than before, that some other countries have not met their commitments and that, arguably, the Kyoto framework has been shown to be flawed, we should deliver on the 20% target.

A number of Turquoise clients are developing technologies and business models to help meet these goals. What they need is a stable and supportive regulatory framework in which to attract investment. Global warming has not gone away, the science has not been disproven and we cannot expect others to take positive action when we fall short. Particularly when it will be perceived that we chose to do so for political reasons when it was within our grasp.


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The Heat is On

The Heat is On

Apart from being one of Gloria Gaynor’s better known hits, it also signifies that, as of today (Friday 15 October), the heat in our home will be on. Many of you will have had your heat on since the cold snap in September or so National Grid tells us from daily demand for gas. This evening, my wife will raise a glass to the start of our heating season, picked to match the Soviet Union (more of that later…).

To quote Ed Davey (who? Energy Minister in 2014):
‘… there has been a historic failure to get to grips with one enormous part of the energy jigsaw; the supply of low carbon heat… We have, however, inherited a big hole where there should be policy for finding alternatives to fossil fuel for the supply of heat. In a country like ours, and for obvious reasons, we require a lot of heat: a consequence of our geography, our housing stock and the scale of our industrial activity. As a country, we spend £32 billion a year on heating. It accounts for around a third of our greenhouse gas emissions. Without changing the way we produce and consume heat, we will not meet our long-term climate change target. To get there, we are going to have to change the way we generate, distribute and use heat in buildings and industry. And we are going to need those changes to take place in an orderly, cost-effective way that ensures a vibrant, low carbon economy and a supply of affordable energy for all consumers.’

Very well said, sir!
Now how are we going to do that? This was a topic for debate at yesterday’s Energy Research Partnership (ERP) event in London. There are currently three runners and riders and each has strong benefits but equally significant challenges:

  • Air source heat pumps
  • District heat networks
  • Hydrogen economy.

These are three exciting prospects if you are, as I am, an engineer who likes to help fund innovative companies. However, they are going to be very expensive, take a great deal of planning, need talented people from a wide range of disciplines and take a decade or two to deliver.

Air source heat pumps
Let’s just say heat pumps in any form, as they can also work on sunshine, river water and Earth amongst other heat sources. These devices are measured on a coefficient of performance of around 2.5 to 3.0 (so three units of heat out for each unit of power in). They are not totally decarbonised as the input power usually comes from the grid. They have the advantage of being hung on the side of houses but that creates issues for blocks of flats. There is also a concern about noise and a question as to whether in the depths of winter they can produce enough heat for our leaky homes…

District heat networks
90% of the former Soviet Union uses surplus heat from power generation to fuel a massive hot water distribution system for domestic heating. These systems are normally activated on 15 October each year. However, in terms of applicability elsewhere, consider the well-known joke about a tourist in Ireland who asks one of the locals for directions to Dublin. The Irishman replies: ‘Well sir, if I were you, I wouldn’t start from here’. Soviet cities are designed around their heat systems, whereas we will need to design our heat systems around our cities. Where we build new towns there is an obvious opportunity, one that we are only partly taking up.

Hydrogen economy
OK, I would not have included this in my list before attending the excellent ERP workshop. Hydrogen could be the answer, if for no other reason than it can be done. As you will have seen from walking down the road, we are replacing all of our low pressure cast iron gas mains with bright yellow plastic pipes. It turns out that these pipes can carry H2, so we can supply slightly modified boilers that run on natural gas or hydrogen. All we need is a lot of H2 and a good PR department. If that sounds far-fetched, remember that, 60 years ago, Town Gas was 52% hydrogen. I for one will be getting up to speed on low cost hydrogen production; essentially it’s power and water which doesn’t sound too bad …

So, next time you place your hand on a warm radiator, ask yourself:

  • Should this be on? (If it’s past 15 October, when the Soviets turn the heat on, then you’re ok)
  • How will we do this in 2050?

Enjoy the heating season!


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Volkswagen, Uber, cabbies and London air quality

Volkswagen, Uber, cabbies and London air quality

London is currently in breach of EU limits for nitrogen dioxide (NO2) in the air, which is linked to a range of respiratory illnesses. In July, King’s College London published a report which estimated the mortality burden of NO2 and PM2.5 pollution in London in 2010, with as much as 140,743 life-years lost.

We clearly have a problem, but what can be done to solve it? Transport for London (TfL) introduced the Low Emission Zone in 2011 and are currently planning to implement an Ultra-Low Emission Zone from September 2020. This is movement in the right direction, but far more could be done in a shorter timeframe. It didn’t take 5 years for Chinese cities to ban 2-stroke scooters and switch to CNG taxis.

On paper, new diesel vehicles are relatively clean, but we now know from the VW scandal that real world emissions are substantially different. Replacing the New European Drive Cycle (NEDC) with a more realistic alternative should be a priority. This should incentivise adoption of energy efficient technologies such as those developed by UK based company, Controlled Power Technologies, to reduce real emissions rather than gaming the system.

There should also be more incentive to retire older diesel vehicles that do not have retrofit systems to improve emissions. Cleaning up London’s black cab fleet is a significant opportunity. Black cabs are a British icon, but they are also expensive and polluting compared to petrol hybrids, CNG and electric vehicles. Cab drivers are facing growing competition from lower cost operators such as Uber and if we want black cabs to continue and thrive (which I do) TfL will need to subsidise the greening of the fleet and also remove some of the expensive and outdated aspects of the industry. The advent of effective mapping software means it is no longer necessary for drivers to know the name of every street.


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#YouStink

#YouStink

Please don’t think that this is a gratuitous attempt to insult the reader….it’s just the popular name of a pressure group in Lebanon which is demanding that the government do something about the waste crisis in the country. Those inhabitants who live near the main municipal dump have said “no more” and as a result, heaps of rubbish are building up in the streets of the capital, Beirut.

Despite considerable advances in recycling technology we are drowning in refuse. Municipal waste is becoming a huge problem everywhere and especially in the mega cities of the developing world. New municipal waste tips are met with outbreaks of Nimbyism, the construction of incinerators is fiercely contested wherever they are sited and illegal landfills proliferate. There are reports from time to time of explosions where accumulations of methane have built up from the decomposition of organic waste (Kuwait City, for example).

Until recently, statistics on waste production have been difficult to come by although reporting requirements exist in most countries. The problem is they are not often applied and, where they are, standards & procedures differ! For example, a set of statistics produced by the UNECE Statistical Division five years ago showed the Russian Federation at the top of the table producing 3.9bn tonnes of waste annually compared with all 27 countries of the EU at only 2.6bn. This sounds unlikely given the disparity in population despite the geographic size of Russia.

There is no real reason why governments should not obtain correct and comparable statistics on which to make policy decisions. An excellent resource in this respect is the Waste Atlas (http://bit.ly/ZwkAM2) devised by the University of Leeds and its partners. It shows that most countries of the world with a few exceptions (Somalia, Papua New Guinea & the areas held by ISIS) actually do produce waste statistics.

I am indebted to Antonis Mavropoulos for highlighting the fact that streams of waste change over time and grow at different rates. As the dietary habits amongst the new middle class in China and India change, food waste will increase as a proportion with its attendant impact on methane emissions. Furthermore the problem posed by the dual streams of electronic and plastic waste, already a serious problem in the West, has been mitigated until now by exporting the bulk of both to China for reprocessing.

Exports in these volumes are unlikely to continue as the Chinese become more and more environmentally conscious. This begs a number of questions. Will the expansion of modern waste management systems be capable of handling the increasing volumes generated? Or will the reality be an ocean of new uncontrolled dumpsites with some islands of advanced waste management? And how will those advanced technologies become available for countries that are trapped in poverty and so unable to afford them?

Some will argue for market-based solutions: trash mining, methane extraction and the development of new recycling technologies. But perhaps the most exciting development is where self-selecting networks of individuals and organizations come up with solutions of their own accord which are more agile, innovative and effective than those advanced by state bureaucracies. Nonetheless, against the forecast population increase and growing middle classes in Asia, one thing is clear; unless there is a sea change in the culture of disposal products and built-in obsolescence, none of the above will be sufficient.


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Divestment (Part 2)

Divestment (Part 2)

The FT reported yesterday that ‘Funds worth $2.6tn pledge to dump coal’. So, where does the industry go from here?

At the recent European Energy Venture Fair (http://bit.ly/1iwmyFU), I heard an excellent talk by Peter Tertzakian (http://bit.ly/1MpLEk7) during which he observed that the oil & gas lobby is doing as much as it can to ‘throw the coal industry under a bus’. The topic of his presentation was energy transitions and how incumbents react when faced with the threat of new forms of energy. He noted that their first instinct is to lobby for government assistance on the basis that jobs are at risk but that eventually they fight back by innovating and reducing costs.

Well, the coal companies in the US have certainly followed the first part of the game plan. So did the coal industry here in the UK, around 30 years ago, but that was in the face of competition from overseas not environmental regulations. We have seen similar tactics in Australia in opposition to carbon trading and, more recently, in Germany in support of lignite mining. So far, so predictable. The more interesting question is what the coal industry can/will do to adapt its offering to market conditions and compete against cleaner sources of energy which include oil, gas, nuclear, renewables and pretty much anything else.

Firstly, coal is a cheap source of energy and low cost is a powerful competitive advantage. According to Mr Tertzakian, history shows that new forms of energy need both greater utility and lower cost to displace the incumbents. It is also in plentiful supply from reliable sources, so confers energy security. And it’s easy to use; coal-fired plants are much easier to build and run than nukes and much larger scale than renewables. There remain willing customers in placed like India, for example, which has not suffered the kind of air quality problems that the Chinese are now trying to remedy.

But what about innovation? In theory, coal could be a low-carbon fuel; it just needs carbon capture and storage. Although CCS provokes both scepticism (too expensive!) and opposition on principle (it’s somehow cheating!), a few projects are now off the ground, or at least on the launch pad. The coal companies had a chance to put some financial muscle into the nascent CCS industry around 10 years ago but chose instead to engage in self-denial. Perhaps there is still time for them to back the technology, bring down the costs and demonstrate that coal has a future in a lower-carbon world. If not then the efforts of socially-responsible investors and regulators may call time on the industry.


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Time is running out

Time is running out

Ok I’m going to start at the beginning, I joined Shell International in The Hague in 1985 as a young engineer because…. well why not and the pay was great. I have worked in the energy industry ever since and today I will not work for industries that develop new reserves of coal or oil as in my personal view there is already too much CO2 in our atmosphere for my grandchildren to deal with.

So in a mere thirty years my experience has changed from being attracted to the prospects in a fossil fired future to a red line thorough any further work in that trade. It is with regret that despite Margaret Thatcher’s excellent Climate Change Speech presentation to the UN General Assembly (1989) (https://www.youtube.com/watch?v=VnAzoDtwCBg) I was a climate agnostic and then sceptic for many years. In 1996 when working for one of the fastest growing coal based Independent Power Producers I worked for the affable Chairman Mr Roger Sant, nothing surprising in that, but he too was assessing the science and this from the interesting dual perspective of being the Chairman and founder of a multi-billion dollar coal based power company and a Director of the US World Wildlife Fund. His assessment was that the science was leading him to be more concerned about global cooling. It took a 2006 documentary film ‘an Inconvenient Truth’ about former US Vice President Al Gore’s campaign to educate citizens about global warming to focus my attention, I did not need the story repeated thousands of times but I did watch the film about three times in a week.

Al Gore, Margaret Thatcher and President Obama amongst others have shown the leadership to identify the problem, however the response has and continues to be inadequate. Researchers from the Climate Action Tracker (CAT), a consortium of research institutions tell us that Global plans to curb carbon dioxide are well below what’s needed to keep temperatures from rising more than 2 degrees. As part of the attempts to tackle global warming, countries have agreed to submit their national plans to the UN before key talks in Paris in December CAT examined the commitments already made by governments to limit warming in the lead in to Paris 2015. According to the analysis, the commitments made so far would see temperature rises of up to 3C, with greater impacts on sea-level rise and the frequency of extreme weather events.

The renewables industry (absent hydro and waste) despite good growth remain at a few percent of global primary energy demand and the current trends (led in many ways by the UK) are to reduce the rate of adoption of renewable power. Combine this with growing populations and increasing wealth leading to continued growth in primary energy demand despite heroic improvements in energy efficiency and there is room for considerable gloom.

The recent international migration crisis and the need to reduce western levels of debt will be the focus correctly but to repeat Margret Thatcher’s plea to the UN in 1989 ‘We need an international binding framework agreement’, she targeted a two year window to agree and the sad truth is some 26 years later and long after she has died we are still no closer to this agreement and nothing is expected form this commentator from the forthcoming December Paris UN IPCC summit.

If you work in energy or you are a scientist I urge you to stand up, explain that we are failing to reduce global warming and make sure policy makers get going on setting these limits soon, as well as dealing with the other pressures.


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An Unintended Consequence of Right to Buy

An Unintended Consequence of Right to Buy

Housing Associations, charities that provide social housing in the UK, have had a bumpy ride over the last few months. The Government has decided to impose a 1% annual rent reduction in the social rented sector for 4 years from April 2016. This is forcing Associations to cut costs wherever possible and reduce capital expenditure. A second policy is to give tenants the right to buy the properties they are living in at a discount (extending the right that currently exists for council house tenants). While this will benefit the tenants themselves, some, including the Office For Budget Responsibility worry that these policies will reduce the supply of social housing. Another potential casualty is energy efficiency.

While the right to buy proposals include some contribution for recent expenditure on a property, Associations could potentially recoup less than half their investment. With pressure on expenditure budgets, this amounts to a major disincentive to spend money on improving existing properties, particularly energy saving projects such as installation of efficient air source heat pumps or solar panels. Compared to fixing a leaking roof, energy efficiency projects are non-essential, but have the potential to offer significant benefit to those in fuel poverty.

One Association I was speaking to has a programme to install air source heat pumps in tenant properties, where they expect to recover approximately 70% of the difference in cost between the air source heat pump and renewing an existing storage heating system from the Renewable Heat Incentive (over 7 years). This marginally loss-making policy in order to save tenants’ energy costs seemed remarkably altruistic to me, but will almost certainly not continue. In theory, tenants could be asked to sign a contract to reimburse the Association for the investment if they subsequently purchase the property, but this adds complexity and risk to what is already a marginal programme.

In the long run, energy efficiency saves money and improves quality of life. More could be done to promote it, especially where the benefits go to those in fuel poverty.


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A need for nuance

A need for nuance

Investors in the energy and environmental space know that, for better or worse, policy matters. Some examples are obvious, like direct government subsidies for renewable power generation. Others are equally recognisable but have a more indirect impact, like landfill tax. And then there is a large number of ‘micro’policies such as industry- and product-specific standards covering things like chemicals used in consumer products, energy efficiency standards in electrical goods and recycled water quality. Whilst these ultimately manifest themselves as legal or regulatory requirements, they are often preceded by consultation, debate and lobbying.

To many people, lobbying brings up an image of vested interests (like ‘Big Oil’) trying to preserve the status quo. But, of course, in the environmental sphere there is a range of actors who lobby on behalf of renewables, clean fuels, low-carbon housing and so on. Certainly they are smaller and more diverse than their counterparts who represent the incumbents in these industries but nonetheless they have an impact. However, is it always the right impact?

Politicians may say that the public audience has a limited appetite for detail and prefers clear, strong messages. Lobbyists may say the same of most politicians. This leads us down the path where every issue is black or white and all interested parties are good or bad.  Even  though  the  subjects  are  complex,  the  nuances  get  lost  in  the  heat  of  argument.  So  if  central  government  assumes responsibility  for  approving  wind  farms,  fracking  sites  or waste-to-energy  plants,  it  is  either  confronting  the  nimbyism  which  is holding back necessary development or it is riding roughshod over the reasonable concerns of local communities. If government devolves these decisions to the regions but allows commercial interests to offer a share in the profits to local communities then that is either a win-win for localism or encouragement of corruption and bribery.

The  European  biofuels  sector  provides  an  excellent  example  of  the  often  perverse  impacts  of  lobbying.  Having,  in  the  face  of opposition  from  the  oil  industry,  promoted  a  biofuel  industry  as  a  way  to  partially  decarbonise  transport  fuels,  the  European Commission  was  subjected  to  a  bombardment  of  criticism  from  a  range  of  environmentally-minded  parties  including  prominent NGOs.  Their message met  all  of the  effectiveness  criteria: food-based  biofuels  were  bad  because  they  caused  starvation  in  the developing world,  served to increase carbon emissions not reduce them and were responsible for sweeping deforestation in Asia. There was little-to-no differentiation between various types of biofuels and their respective feedstocks, at least partly because that kind of subtlety would have undermined the simplicity of the message.

On  the  other  side  of  the  debate,  the  response  was  equally  lacking  in  nuance.  Because  industry  lobby  groups  represented producers of all biofuels, they too were unable or unwilling to differentiate between them. So the only possible response was that all biofuels  were  good  because  they  substituted  for  carbon-intensive  fossil  fuels,  they  reduced  dependence  on  imported oil,  they created markets for European farmers and they did not have a material impact on global supply and demand for foodstuffs.

A more considered analysis might have argued that, taking into account all of the relevant criteria, some biofuels were better than others and that policy should favour those products. It might have said that the impact on emissions would depend on where the feedstocks  were  sourced  (and  the  farming  practices  in  those places)  and  what  kind  of  energy  generation  was  used  in  the processing plants. It might have said that Europe had significant excess wheat production capacity that could be used to support bioethanol production. And it might have said that the impact of bioethanol demand on the global grain market was small relative to biodiesel demand on the much smaller oil seeds market (contributing to both price volatility and deforestation).

At the time, the situation was far from clear and there were some legitimate concerns on most sides of the argument. But most of the lobby groups were not interested in highlighting the complexity of the issues; all that mattered was the clarity of the m essage which had to be yes or no, one or zero. The result was years of uncertainty in policy-making during which time the European biofuel industry ground to a halt and little progress was made in reducing the carbon intensity of transport fuels.

We should be able to do better.


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The Greening of Glastonbury

The Greening of Glastonbury

Music festivals have come a long way since the days of Woodstock and the Isle of Wight when, if they didn’t start free, they often became so half way through. These days they are a big business not just in the UK but also in Europe, America and further afield. Perhaps the best illustration of this evolutionary change is to be found in the Glastonbury ticket price and attendance figures. At the very first festival held at Worthy Farm in 1970 when The Kinks stood in for T Rex, entrance was £1 and 1,500 people came to see the show. By 1982, the festival was attracting 25,000 or more with each person supposed to be paying £8 to experience Glastonbury’s delights. After that it began to get seriously popular. Attendance peaked at 150,000 in 2003 and the ticket price reached £105. Since then, numbers have been restricted to around 135,000 as a result of the organizers’ concerted effort to make the festival greener in line with its original ethos while the ticket prices have more than doubled.

Nevertheless, the site still requires 27MW of power which is equivalent to the consumption of the city of Bath. This is generated by 250 bio-diesel generators running on 60,000 litres of waste vegetable oil. Car journeys remain the major source of carbon emissions, however, in spite of the lift sharing initiative and the provision of shuttle buses from the local station. The 2,000 tonnes of waste produced each year, much of it abandoned camping equipment, is arguably the most intractable problem they face. Although surveys have shown that over 70% of festival-goers think that rubbish detracts from their overall experience and over 80% agree with the proposition that they would separate their rubbish if clearly-marked bins were provided.

The greenest festival used to be the Hovefestivalen, held on the island of Tromoy in Southern Norway, where all rubbish was sorted on site. Sadly, it seems to have gone out of business this year, out-competed by the Tinderbox festival in Denmark which is publicly backed. If “Love the farm, leave no trace” is the watchword of Glastonbury, clearly there is still some way to go between the aspirations of the organizers and the cold light of the dawn the day after!


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Global energy: The ice bucket challenge

Global energy: The ice bucket challenge

post-11

The challenge being to look at the chart above.

I am all for celebrating successes, of which I can think of many in the renewable energy industry. But while the lowest, dark blue line is moving upwards, I cannot help but notice the red lines above are moving upwards also!

Perhaps the only advantage, from an environmental perspective, to increased fossil fuel demand, pushed up yet further by recent price falls, is that when supply constraints bite (as they generally do when oil/gas/coal depletes; ignoring capital investment cycles), the consequent increase in price will be all the more rapid.

To put that in supply/demand terms (for oil): This demand increase represents a steepening of the demand curve, while the the price falls of the last year are explained mostly by a downward movement in the supply curve as a result primarily of improvements in shale gas extraction technologies. A cut by OPEC might traditionally have moved the supply curve back up again, though has not been forthcoming.

My point is that while we may debate the relative importance of market forces and government or international policy in the transition to a low carbon energy system, it’s fair to say neither has done the job yet.


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China: A new frontier (for me at least)

China: A new frontier (for me at least)

Some of my colleagues have lived in China and one is fluent in Mandarin, but my recent 10 day trip to meet companies and investors was my first experience of the country. I knew that China was a big market, but this did not prepare me for the vast scale I encountered. In the UK, a new housing development with 3 towers might be considered large, whereas in one second-tier Chinese city I witnessed multiple developments some with as many as 40 towers (10 in a row and 4 deep). London’s efforts to solve its current housing problem seem feeble by comparison. Some third-tier cities have a population larger than Scotland.

Some of the Chinese whom I met commented that London looks very under-developed; after driving past the CCTV building in Beijing you understand why. Some regions of China remain very poor, but, from an infrastructure and buildings perspective, the coastal provinces have caught up or overtaken many Western countries. The years of double digit growth are probably now over, but China still offers huge opportunities as it continues to develop.

The Communist Party is starting to promote the idea of rule by law, but significant change is still required for this to be achieved. In the absence of a robust legal system, Chinese businessmen have relied on ‘guanxi’ – simplistically, trusted relationships and connections with the purpose of mutual co-operation.

For a foreign company seeking to operate in China, relationships and trust are crucial but can take years to achieve, especially with the language barrier (even now few mainland Chinese speak English). A second key to success is support from the Chinese Government. Government officials have the best understanding of policy changes that may create significant business opportunities to help achieve policy aims.

Environmental issues are high on the political agenda and sweeping change can occur rapidly. Petrol motorbikes and scooters have been almost entirely replaced by electric scooters and there is strong pressure to improve efficiency and reduce emissions in all sectors.


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Automotive technology ventures – identifying opportunities in a challenging arena

Automotive technology ventures – identifying opportunities in a challenging arena

Backing automotive technologies is undoubtedly risky but has huge potential upside given the very large volumes involved.

Investors looking at making venture capital investments in this sector will quickly find themselves faced with a choice between 3 types of innovation which can be simplified as:

(1) the “evolutionary” process of making the internal combustion engine (ICE) more fuel efficient and less polluting

(2) the “revolutionary” process of replacing the ICE with electric equivalents powered by batteries or hydrogen fuel cells and redesigning other vehicle systems accordingly

(3) using the power of mobile internet to make the way we use cars more efficient.

The media and political establishment seem fixated by the second type of innovation, and the car companies have been happy to oblige. Announcements of new electric and hybrid cars, openings of charging stations, and targets for more in the future have all captured the limelight. However, for the time being these technologies are still far too expensive for the volume car market, which is why sales have being growing too slowly to make any significant impact.

In the meantime, all of the very impressive efficiency increases and emission reductions of recent years have been due to the first type of innovation aimed at making today’s cars continuously better. Moreover, this will continue to be responsible for most of the improvements that we will need to achieve for at least the next 15 years.  By which time, provided the investors in second type of innovation don’t lose their nerve and the regulatory pressure for ever cleaner cars continue, electric and fuel cell cars should have become affordable enough for the volume market, our electricity and hydrogen supply networks should have expanded to be able to power all the new cars that will be reliant on them, and our method of generating the required electricity and hydrogen may have become non-polluting enough to generate a positive overall environmental result.

In parallel, we will be finding out more about the impact of the third type of innovation. Will they lead to more or less car use? Can smart route finders really avoid traffic congestion if everyone is using the same algorithms? Will a self-drive car ever be considered safe enough? Will such technologies make enough money to justify the price tags that Google, Apple, et al seem willing to pay for them at the moment?

So, which type of innovation should a venture investor focus on? Since the three are interlinked, investors will need to keep an eye on all of them to make sense of what is going on and remain open to investing in any of them.

That said, as always, investors would do well to bias their investment decisions to take account of the constraints within which they have to work regarding, for example:

  • Location: Europe has strong expertise in all things electro-mechanical, whereas connected car innovations are still mostly coming out of Silicon Valley,
  • Availability of Funds: automotive standards are very high and new developments need proper funding and time, so access to a pool of like-minded patient co-investors is important,
  • Risk Appetite: evolution is typically less risky than revolution.

The automotive sector is undergoing significant change, which is creating opportunities for informed investors.


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Does it make sense to import wood for energy?

Does it make sense to import wood for energy?

Suffice it to say, initially, that I believe the world’s present-day managed and semi-natural forest areas can sustainably produce a much greater biomass yield than they do, at present, and thus provide reliable energy, with some degree of carbon savings, while incurring no land use change at all. This is what the consultants’ reports tell us.

In practise however, we may find that the lowest cost biomass is available via newly established plantations, which then requires us to consider issues such as habitat loss and hunger. Real expertise, and intelligent policy, are both required so that the lives of people local to forestry projects can improve, while nature successfully co-exists. Fencing off areas for nature is a highly limited approach, and benefits only a small number of people. While hunger is, of course, a genuine phenomenon, the large amounts of meat consumed both today and in all projections of human population and diet indicate the phenomenon is one of affordability, distribution and volatility. In other words it is a problem of economics, and therefore policy, rather than genuine limits. These are fascinating and important areas of policy, and they take expertise, but in my opinion we should certainly attempt to resolve them, in time, rather than limiting ourselves to those areas described in the first paragraph (above).

However, to address the question in the title of this blog, does importing wood to the UK for energy make sense? I think it is a question many in our industry have instinctively asked themselves at one time or another, and I have two main observations on the issue. Firstly, an EU (or within EU) policy which stimulates a biomass import trade flow is at least risky while other EU policymakers are seeking a strong global carbon treaty. The latter policy rapidly ought to stimulate local biomass demand pretty much everywhere, thus hampering the trade flow created by the former. One might imagine a policy of ‘first do no harm’, that should be generally prevailing. My second observation is that because the impact of any green subsidy is always smallest in a world where a full carbon treaty does not exist (such is the price elasticity of demand for fossil fuels – a ‘leakage’ effect), international biomass trade is most likely in a scenario where its impact is most limited.

‎Thankfully for biomass developers everywhere, leakage of carbon savings via this effect is most certainly less than 100% (though rather hard to estimate), and a large, and also unquantifiable, part of the value of any green subsidy is the reduction in cost achieved for future adopters, through innovation, learning etc. There is another point to consider, though. If a global carbon treaty was achieved, but placing costs predominately on developed countries in the near term, and if it did not include a workable ‘offset’ mechanism (of the Clean Development Mechanism type), whereby local LEDC reductions could be funded by costs borne by MEDCs, then there might still be potential for LEDC to MEDC biomass flows for some time to come. These flows, thinking further, might actually replace imminent and presently occurring MEDC to MEDC flows, in the instance of MEDC domestic demand (in that same scenario). So the answer to the question under discussion becomes linked to larger, more difficult questions: What might, and what should, a globally binding carbon reduction treaty look like? Even if we can agree on who should pay for climate change (see an earlier blog of mine), then the answer to these detailed questions are sadly not obvious.

In conclusion, biomass makes all the sense in the world as a dependable, fundamentally carbon neutral fuel source that provides ongoing employment and, potentially, sustainable value in developing countries. However, policy makers should be wary of creating trade flows that carry risks from policies their colleagues are separately pursuing. The rationale for importing wood is closely linked to other policies, as summarised in the chart below.

 

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The Canaries in the Coal mine

The Canaries in the Coal mine

From its origins in the coffee houses of London during the late seventeenth century until now, the modern insurance industry has always been affected by the vagaries of the weather. The Lutine Bell traditionally rang out in the Lloyd’s Building in London to alert underwriters to impending bad news like the sinking of a merchantman with an insured cargo during a storm.

Nowadays, the weather impacts insurance companies in two distinct ways. First, there are the claims. Worldwide damage  and  weather-related-losses  have  increased  from  an  annual  average  of  $50bn  in the  1980’s  to  nearly $200bn  this  decade  according  to figures  recently released  by  the World  Bank.  Secondly, there  is  the  physical effect  on the  investments  held  by insurance  companies from  extreme  weather  events  as  well  as the  impact  of new carbon regulations and disclosure rules on their portfolios.

That’s why the Chairman of Lloyd’s, John Nelson, has said that understanding and incorporating climate change into  future  modelling  has  become  essential  for  anybody  making  long-term  financial  commitments,  be  that investing  in  infrastructure  &  housing  or  making  public policy.  So  how  has  the  industry  been  addressing  the problem since Hurricane Sandy devastated parts of the north eastern seaboard of the United States in 2012?

Initially, it didn’t do much. A report by advocacy group Ceres in 2014 ranked the largest 330 insurance companies with a presence in the United States by what they said they were doing to address the problem. The most pro-active among them were ACE, Munich Re, Swiss Re, Allianz, Prudential, XL Group, the Hartford, Sompo Japan & Zurich. By contrast health & life and annuity providers, which between them hold two thirds of the industry’s overall investments, ranked poorly.

However, since then the intervention of the SEC in America and the Prudential Regulatory Authority in the UK has  pushed  climate  change  higher  up  the  agenda  and  led to  greater  disclosure  in  general.  To  give  some examples, brokers are now including new “green clauses” in buildings’ policies which specify types of materials and design. Climate risk management advice is being given to companies on their supply chains. And health, life &  annuity  providers  are  increasingly  defining  environmental  as  well  as  social  &  governance  criteria  in  their investment mandates.

“The  rating  agencies  are  now  insisting  on  robust  asset/liability  management  capable  of  mitigating  the  double exposure  of  their  clients  to  both  claims  and  investments.  As  the  Washington  insurance  commissioner,  Mike Kriedler,  said  recently: “This  is  not  just  a  partisan  issue,  it’s  about  financial  solvency  as  well  as  consumer protection.” But although for many the debate appears to have moved on, there remain some for whom it has not. The American Coalition for Clean Coal Electricity recently criticised the peer-reviewed, 840-page national climate assessment report as “full of unsubstantiated tactics & hyperbole.”


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Divestment: The rights and wrongs

Divestment: The rights and wrongs

Climate-driven divestment is all the rage. Recent high-profile announcements by large
investors, such as the Norwegian sovereign wealth fund, that they are considering selling
out of companies whose business relies on the production or consumption of coal has set
the cat among the pigeons in the fossil fuels world.

The coal lobby has denounced the move on the grounds that well-meaning westerners have no right to deny
cheap energy to the developing world and to destroy jobs in the coal-producing heartlands of the United States
and Germany. Some oil company executives, sensing that they are next on the hit-list, have claimed that
divestment will be ineffective because, for every seller of these shares, there will be a willing buyer who doesn’t
care about climate impact. Interestingly, other ‘oil’ companies have decided that they are in fact ‘gas’ companies
and have broken ranks by calling for a global carbon tax. At the same time, we are seeing a leading power
company moving to break itself up into a ‘good’ utility (renewables-based) and a ‘bad’ utility (fossil and nuclear).

What should we take from this? Whilst it is difficult to assess what impact the divestment campaign will ultimately
have, the first thing to note is that the mere mention of it has some people running scared. When busy
executives take the time to explain in detail just why they are not concerned about this issue and to outline the
reasons why it’s not going to impact them, then you know they are at least worried. One of the questions that
must be occupying them is whether divestment is simply an attempt by the climate lobby to influence public policy
or whether it reflects an evaluation on the part of hard-headed investors that regulation is now moving against the
fossil industry and they need to cut-and-run before the coal and oil reserves become ‘stranded’ and destroy the
balance sheets of the producers.

To be continued …


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A few weeks later: Conservative energy policies

A few weeks later: Conservative energy policies

Not being an experienced observer of the political machine at work hasn’t deterred me from  mulling  over  what  the  first  few  weeks  of  a  new  Government  mean  for  energy. Amber Rudd MP, our new Secretary of State for Energy & Climate Change, blogged on 27 May 2015; what did she say?

It might be more productive to observe first what was not said; here are my top three:

  • No ‘industry wide consultation’ to deal with the march of the Trilemma and its conundrums; of course, it’s  still  lurking  at  the  top  of  the  blog  but  moving  nearly  towards  something  a  power  engineer  can understand (see below)
  • No ‘prize freeze’ and subsequent industry meltdown (not a political comment by the way)
  • No ‘new Ofgem’ – the toothless regulator is to stay

This  is  progress  verging  on  stability  and  a  chance  to  get on  with  some  real  work  rather  than  wade  through another 300 page consultation paper.  Labour’s prize freeze would have been a big distraction, so all good on that front. No new Ofgem, never going to work that one; it’s like sewing Hydra’s teeth.

So, we are going to focus on the famous three: lights on, low bills and, magically, a deal on climate change.  I still don’t get why anyone still believes this nonsense.  Why not just go back to what the energy industry has always done and something it understands: delivering a least cost energy system that meets the legislation of the day and  the  expected  constraints  of the  future.    This  doesn’t  say ‘low’  bills, rather  it implies  lower  than they might otherwise have been – quite different.

(Wasted breath)

Other policies are as expected: an oil & gas regulator empowered to deliver shale gas (and oil?) and a new bill to give local people a greater say (i.e. ‘no’) on wind farm applications.  There is a clear message on the science: ‘Man-made  climate  change  is  one  of  the  most  serious  threats  this  country  and  the  world  faces’,  followed  by  a reminder that the EU has an opportunity to prove (or otherwise) its worth at the Paris talks this December.

Rather encouragingly for our industry is the parting thought of Amber Rudd’s blog: ‘We are leading the way in clean  technology  and innovation,  creating  new  jobs  and  helping to  power  our  economic  recovery’.    Jolly  good show!


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Who should pay for climate change?

Who should pay for climate change?

Often,  giving people  a  reason to think  or  act in  a certain way is  one  of the most powerful tools  one can  employ. The hope  of those concerned about climate change is that these reasons can be mutually communicated and agreed at the Conference of the Parties (to the UNFCCC) in Paris later this year.

Indeed,  the  text  of  the  communique  resulting  from  COP  20  in  Lima  last  year  talked  of “common  and  differentiated”responsibilities, and targets, reflecting “different national circumstances”, as key to future discussions. So whether reductions in emissions be achieved via in-country policies, such as taxes, or by a global carbon trading scheme, answering the question as to who should pay more or less, is potentially very important.

Implicit  in the  assumption  that  present  day  populations  should  bear  a  cost  for  the  emissions  of  their ancestors  is  the  idea  t hey  have  benefitted  from  those emissions. After all, only a certain portion of historic emissions have actually been directly made by populations alive today.

So  the  most  obvious  candidate  to  distribute  the  costs  involved  would  be  historic  emissions  of  a  nation  divided  by  the  present  day  population  size  of  thatnation. A  discount  factor could be  applied, looking  back  over time, in  order to  sum historic  emissions together  and bring them to  a present  day  total.   This discounting could, in theory, link the ‘ responsibility’  attached to  emissions to the improvement in  understanding  of climate change which  has  occurred  over time.

However,  natural capital  (such  as  fossil fuels) is not  always converted successfully into  other, long-term income yielding  forms  of capital  such  as legal  and educational  institutions.    It  seems  unlikely  that  accounting  for  variation  in  nations’   relative  success  or  failure  in  this  capital-conversion  task  (known  to economists  as ‘ genuine  savings’ ) should,  or  even  could,  be  fully  accounted  for  in  answering  the  question  as  to  who  should  pay  for  climate  change  today.  Nevertheless  one might  at least  expect those countries where  economic benefits had  not  really  been  felt to  argue in  favour  of this theoretical link between benefit from and responsibility  for historic  emissions.One might argue that  a simple discount rate  applied to  all  historic emissions  account s for the fact the conversion is not always 100%.

Working  against  historic  discounting  of  emissions, however,  might  be  the  longer  atmospheric  residence time  of  emissions  made  further  back  in  time.  The calculation would also have to take into account that of historic emissions (of CO2 anyway), roughly 50% have so far been absorbed by the planet’ s oceans and terrestrial ecosystems.

This present-day divvying-up of ‘ responsibility’  could be combined with short term per-capita projections of actual costs to reduce carbon (marginal abatement curves), for specific countries, in some kind of purchasing-power-parity terms, to arrive at a near-term target for each nation.

If a global carbon budget could be agreed, out to a future point in time where there are zero emissions, then the correct relative allocation in costs, out to the same point in time, could reasonably be projected as well, given emissions and population size are reasonably foreseeable.  However, the missing knowledge would be the economic cost to each nation of a given reduction, per unit of carbon, at a given point in the future, because this is highly dependent on alternate fossil fuel prices, and innovations that will have occurred.  These future carbon abatement curves would therefore be needed, in theory, to arrive at long term carbon targets.

One  might  hope,  however,  that  reasonable  assumptions  could  be  made  in  this  area,  so  as  to  achieve  sufficient  confidence  in  the long  term  scheme  (any confidence  would  be  nice),  and  that  firm  targets  for  the  short  term  could  be  accompanied  by  indicative  goals  beyond.  A  mechanism  of  looking  forwards  at regular periods  of time to  divvy up  short term costs,  so  as to stay within the  original carbon budget set, whatever the total  of those short term costs might come to, would be the obvious way to address this issue.  I understand such a mechanism is under discussion.

If  all  this,  in  terms  of  numbers  and  analysis  feeding  into  discussions,  is  too  much  to  hope  for  in  Paris,  what  can  at  least  b e  hoped  for  is  a  universal appreciation of the principles involved, and that a similar outcome might be replicated by an iterative process of target -pledging.  There is certainly hope.


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The conundrum of grid scale electricity storage

The conundrum of grid scale electricity storage

Electricity generation from wind and solar PV is intermittent, so as the % of renewables increases, the UK will have a need for grid scale electricity storage, right? After all, storage already exists in the form of the 1.7GW Dinorwig pumped-storage hydroelectric plant in Wales and its sister facility.

On the flip side, Germany with approximately 30% renewable electricity (versus approximately 15% in the UK) has recently mothballed its storage capacity due to an insufficient price difference between peak and overnight electricity prices.

The reasons include increasing interconnection between electricity grids and flexible gas combined cycle plants that can go from idle to full power in around 30 minutes. Smaller gas reciprocating engines can be at full power in under 10 minutes. In addition, demand shifting (programming electrical loads to avoid periods of peak demand) will have an increasing impact.

So is there or is there not a need for electricity storage?

It depends on the cost. Flexible gas plant is currently providing peak loads which could be provided by energy storage, but only if the storage technology is cheaper. Calculating the levelised cost of storage (LCOS) is not straightforward and requires various assumptions which are hard to estimate such as how many hours the plant will be used for and the price of input electricity.

Short Term Operating Reserve (STOR) contracts give a high export electricity price but demand is only for approximately 30 hours per year, favouring low capex options such as diesel gensets. The cost of gas generation ranges between (at the low end) the operating cost of existing capacity and (at the high end) the levelised cost of new gas plants, which should take account of potentially higher gas prices and a cost for carbon emissions.

While storage may soon be cheaper than gas (and certainly lower carbon), there is currently no commercial framework to underpin a large investment in capacity. This will require a new policy framework covering storage as part of the UK Capacity Market.

In the short term, the early adopters of storage will be islands and remote communities which currently use imported diesel for electricity generation (costs ~$0.40/kWh) and could replace it with wind and/or solar PV plus storage. But large-scale gird storage in developed markets will be much slower to emerge.


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Insurance & Climate change

Insurance & Climate change

Insurance & Climate change My  day  was  brightened  this  morning  by  noticing  a  colourful  advertisement  in  my  newspaper  of choice for the new Coral Reefs – Secret Cities of the Seas exhibition which is being staged by the Natural  History  Museum. 

It  was  not  so  much  the  witty  depiction  of  the  reef  denizens  as stay  at home  dad  (seahorse)  or security  guard  (trigger  fish)  that  caught  my  eye  but  the  fact  that  the sponsor was Catlin, a medium-sized reinsurer specializing in property & casualty lines.

Further proof, if any was needed, of the insurance industry’s growing engagement with the issue of climate change and  its  effects. 

Furthermore,  not  only  has  the  chairman  of  Lloyd’s  of  London  said  publicly  that climate change is their (Lloyd’s) number one issue but Europe’s largest insurer, Allianz, has fleshed his hypothesis out by saying that losses from extreme events in an average year will increase by 37% within  a  decade. 

This  has  now  moved  from  the  realms  of  scientific  and  political  debate  into  the world  of  balance  sheets  and  profit  and  loss. 

The  costs  of  climate  change will  increasingly  be measured not only in terms of government expenditure on renewable energy and carbon mitigation but also in business and household insurance premiums.

Whether or not you believe in the science or think that it is someone else’s responsibility to address the issue, the costs will catch up with all ofus in the end.


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How the political parties shape up on climate change

How the political parties shape up on climate change

Politicians from five political parties have clashed in a recent BBC TV debate over action to tackle climate change – with UKIP arguing it is not caused by humans. So how do the Parties shape up on energy?

Matt Hancock (Con) praised the government’s record on reducing carbon emissions. But Ed Davey (Lib Dems) had to “fight every day” with its coalition partners for renewable forms of energy. Caroline Flint (Lab) refused to rule out fuel duty rising whilst promising to freeze prices for other fuels. No one on the stage knew what the price of energy actually was.

Roger Helmer (UKIP) did not help the general consensus on climate change by adding: “I do not believe that the changes in climate are substantially caused by human activity”. He also insisted that it was not something voters were particularly interested in, removing himself entirely from the idea of leadership in this arena. He went on to demonstrate his considerable scientific knowledge on the matter by selecting a single indicator out of many: “There’s been no further global warming for 18 years”.

“Environmental policy is about the beauty of our green and pleasant land. Putting onshore turbines in the wrong places where they are not wanted is not acceptable to local communities and we need to tackle that while supporting other renewables and low carbon,” said Mr Hancock. But Mr Davey compared Mr Hancock’s support for renewables but not for onshore wind to “saying you like the Rolling Stones and not liking Mick Jagger”.

Ms Flint said Labour would continue to support the development of renewable forms of energy. “There are costs to this, but let’s remember on our bills the green levy only amounts to £60 of an average bill of £1,300,” she said. So fix climate change for £60 per year; what’s the fuss?

I suspect only those in the know watched to the end; no one else would have been able to make neither head nor tail of it.


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